The tech world is betting big on the metaverse -- a concept that hopes to enable virtual avatars of real people to interact in 3D virtual worlds irrespective of their physical location.
The metaverse is still in its infancy, but it reportedly already attracted $57 billion worth of investments from tech giants, venture capitalists, and private equity companies in 2021 alone, according to McKinsey & Co. That same report says investments in the metaverse will double to $120 billion this year. It won't be surprising to see this number head higher with each passing year, as the metaverse is expected to generate $5 trillion in revenue by 2030 as it more deeply impacts multiple sectors of the economy, including e-commerce, online learning, advertising, and gaming.
These massive investments will also likely unlock a tremendous long-term opportunity for investors buying into companies powering the metaverse. Advanced Micro Devices (AMD +3.50%) and Roblox (RBLX +0.62%) are two such companies that could play a big role in the development of the metaverse and help investors make a fortune. Let's see why these two metaverse stocks could make shareholders a fortune.
1. Advanced Micro Devices
AMD's data center business has taken off big-time. In the second quarter, the segment's revenue shot up 83% year over year to $1.5 billion as major cloud computing and enterprise customers chose its EPYC server processors to power their cloud services. What's more, AMD's data center graphics cards also powered the world's fastest and most energy-efficient supercomputer (the Frontier supercomputer housed in the Oak Ridge National Laboratory in Tennessee).
NASDAQ: AMD
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The metaverse could help AMD maintain the impressive growth of its data center business. That's because the cloud computing market should get a big shot in the arm as the metaverse comes to require more powerful data processing, creating the need for more server processors and graphics cards. The good part is that AMD already has a foot in the door, as Meta Platforms (META +0.23%) has chosen AMD's processors to power what it calls the world's largest artificial intelligence (AI) supercomputer, which Meta says it will use to form the building blocks for its portion of the metaverse.
Additionally, AMD's acquisition of Xilinx, completed earlier this year, should strengthen the former's ability to take advantage of the metaverse. That's because Meta Platforms will use Xilinx's chips to develop a platform for open radio-access networks (RANs), which it wants to use t form the backbone of the metaverse. This could give AMD access to another big opportunity, as the open RAN market is forecast to grow at an annual pace of 42% through 2030.
While AMD's data center business works to clock robust long-term growth through cloud service providers and enterprise customers ramping up spending on infrastructure upgrades, gaming in the metaverse will also be ramping up its infrastructure. Metaverse gaming is projected to generate as much as $125 billion in revenue by 2030. That could trigger the adoption of more gaming consoles and computers in the long run.
AMD is a key supplier of chips for gaming consoles from the likes of Microsoft and Sony, and the demand for its PC (personal computer) processors is robust as well. In all, AMD is well placed to take advantage of the metaverse opportunity in multiple ways, so it won't be surprising to see this tech stock soar higher once this emerging trend gains critical mass.
2. Roblox
While AMD could help investors benefit from the hardware side of the metaverse, Roblox is a play on the software side of this nascent technology.
NYSE: RBLX
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That's because Roblox helps developers create 3D virtual worlds wherein users will interact in the metaverse. The company's offerings not only allow users to explore 3D digital worlds but also enable the creation of online learning experiences. Roblox customers can also use its cloud platform to build customized virtual experiences and services.
Not surprisingly, Roblox has already started attracting major names looking to establish a presence in the metaverse. The company is also putting solid numbers on the board, with its second-quarter revenue increasing 30% year over year to $591 million. More importantly, Roblox's average daily active users (DAUs) increased 21% year over year to 52.2 million last quarter. The number of hours engaged was up 16% over the prior-year period to 11.3 billion.
What's more, Roblox is witnessing an improvement in user engagement, as its July 2022 metrics show. DAUs in July were up 26% year over year to 58.5 million, while hours engaged increased 25% to an all-time monthly high of 4.74 billion. It is also worth noting that Roblox's bookings increased 9% year over year in July 2022 to $245 million at the midpoint of its guidance range. That's a nice improvement over its Q2 performance, when bookings were down 4% year over year to $640 million.
The improvement in Roblox's bookings bodes well for the company's future. Bookings refer to the amount of virtual currency purchased by Roblox users to spend on its platform, and they are recognized as revenue once users spend the virtual currency in one of its 3D worlds. Roblox has been witnessing a slowdown in this metric in recent quarters on account of lower user spending and tough year-over-year comparisons, but the July performance indicates that things are now looking up.
That's why investors looking to add a potential metaverse winner to their portfolios may want to buy Roblox right now before it flies higher. The stock is down 60% so far in 2022, but it has shot up more than 24% in the past three months. Investors can still buy Roblox at 11 times sales as compared to its 2021 sales multiple of 36, and they may not want to miss this opportunity given the company's solid growth and bright prospects.
